WASHINGTON - Motivated by some of the lowest mortgage rates seen in decades, home shoppers turned into buyers and propelled new-home sales in November to the highest monthly level on record. New-home sales for all of 2002 are on track for their best-ever year.
Sales of new single-family homes clocked in at a seasonally adjusted annual rate of 1.07 million in November, representing a 5.7 percent jump from October's level, the Commerce Department reported Friday.
"The housing market has become a perpetual motion machine," said Joel Naroff, president of Naroff Economic Advisors. "It just keeps on going and going and going."
Thanks to low mortgage rates, the housing market performed remarkably well during last year's recession and remains one of the bright spots of this year's spotty economic recovery.
The uneven recovery poses challenges for President Bush who, with an eye toward re-election, is readying a tax-cut package aimed at energizing the economy. He plans to announce a package next month.
Senior White House officials, speaking on condition of anonymity, said Friday that Bush has not approved any plans, but the package probably will include acceleration of some tax cuts and breaks he won in 2001 as well as new benefits for shareholders' dividends. There also may be new tax breaks for investors and additional depreciation breaks for businesses.
To avoid a political backlash, advisers say they are likely to recommend that Bush no longer consider speeding up tax cuts for the wealthiest Americans.
He is expected to propose acceleration of the 2001 tax cuts for middle- and upper-income earners, but he might not include the top rate, which is 38.6 percent for income over $311,950, they said.
Friday's home-sales news, meanwhile, failed to cheer investors on Wall Street. The Dow Jones industrial average fell 128.83 points to close at 8,303.78.
On the housing front, "mortgage rates have fallen like a rock this year, so financing conditions are good," said Stanley Duobinis, economist with the National Association of Home Builders. New-home sales will hit an all-time high this year, surpassing the record posted in 2001, he said.
In November, the average interest rate on a 30-year fixed-rate mortgage was 6.07 percent, down from 6.66 percent for the corresponding month a year ago. This week, rates on 30-year mortgages dropped to a new low of 5.93 percent, Freddie Mac, the mortgage company, reported Thursday.
Low mortgage rates this year have been feeding a flurry of refinancing activity for home mortgages. The extra monthly cash that consumers are saving by refinancing mortgages at lower interest rates is helping support consumer spending, which has been the main force keeping the economy going this year.
"Applications for refinancing, while off their peaks, remains high," Federal Reserve Chairman Alan Greenspan said in a speech last week. "Moreover, simply processing the backlog of earlier applications will take some time, and this factor alone suggests continued significant refinancing originations and cash-outs into the early months of 2003," he added.
Another factor motivating home buyers is solid appreciation in housing values. That offers people an attractive investment, especially given the turbulent stock market, economists said.
The average price of a new home in November was $218,900, a 5.8 percent increase from the average price for the November 2001.
All these positive factors supporting consumer spending are helping to offset some negative ones, including a stagnant job market.
After cutting interest rates in November, the Federal Reserve decided this month to hold rates steady at a 41-year low of 1.25 percent. Economists believe the Fed will keep rates at that low level at its next meeting in late January.
The economy, knocked down by last year's recession, has been getting slowly back to its feet this year. But economic growth has been characterized by a seesaw pattern.
While consumers have been keeping the economy alive, businesses, worried about profits and economic uncertainties, including war with Iraq, have been reluctant to make big investments, a key factor restraining the recovery.
In the housing report, sales surged 41.2 percent in November from the previous month to a rate of 257,000 in the Midwest. In the South, sales rose 2.4 percent to a pace of 475,000. But in the Northeast, sales plunged 26.7 percent to a rate of 44,000, and in the West they dipped 3.9 percent to a pace of 293,000.
In October, new-home sales fell 4 percent to a rate of 1.01 million, but even with the decline sales remained at a brisk level.
"The housing market has been somewhat of a savior for the economy," said economist Richard Yamarone of Argus Research Corp.